Lawrence H. White

Lawrence H. White is a professor of economics at George Mason University. Prior to his position at George Mason, he was the F. A. Hayek Professor of Economic History in the Department of Economics, University of Missouri-St. Louis. He has been a visiting professor at the Queen's School of Management and Economics, Queen's University of Belfast, and a visiting scholar at the Federal Reserve Bank of Atlanta.

Professor White is the author of The Theory of Monetary Institutions (Blackwell, 1999), Free Banking in Britain (2nd ed., IEA, 1995), and Competition and Currency (NYU Press, 1989). He is the editor of several works, including The History of Gold and Silver (3 vols., Pickering and Chatto, 2000), The Crisis in American Banking (NYU Press, 1993), African Finance: Research and Reform (ICS Press, 1993), and Free Banking (3 vols., Edward Elgar, 1993). His articles on monetary theory and banking history have appeared in the American Economic Review, the Journal of Economic Literature, the Journal of Money, Credit, and Banking, and other leading professional journals.

Dr. White earned his PhD from the University of California, Los Angeles, and his AB from Harvard University.

Published Research

“Fragility” is the well-known property of being easily breakable, of failing under moderate stress. The opposite property is “antifragility,” a term coined by Nassim Nicholas Taleb (2012a) and the title of his recent book. In this article, Lawrence White considers how we might achieve antifragile banking and monetary systems. There are reforms that can marginally reduce fragility, but the author argues that to achieve antifragility will require a serious turn away from “one-practice-fits-all” centralized regulation and toward a free market’s mixture of innovation and strict discipline. In banking it will require an end not only to “too big to fail” bailouts
of uninsured creditors and counterparties, but also to other forms of taxpayer-backed depositor and creditor guarantees.

As the 100th anniversary of the 1913 Federal Reserve Act approaches, we assess whether the nation’s experiment with the Federal Reserve has been a success or a failure. Drawing on a wide range of recent empirical research, we ﬁnd the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly ﬂawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

The principle of the rule of law could usefully guide us in resolving the extraordinary situation we have been in
for the past two years or so, and even more importantly help us to avoid future crises.

Working Papers

Economists commonly invoke sovereign powers to explain the acceptance of unbacked paper money at a positive value. The government accepts or compels taxes paid in the money (makes it publicly receivable) or compels creditors to accept it (grants and enforces legal tender status). Thus fiat money is thought to rely on enforcement of a literal fiat or decree. The case of Somalia defies this account: following the state’s collapse in 1991, unbacked paper Somali shillings continued to circulate at a positive value. We explain how historical acceptance, or “inertia,” can sustain the ongoing acceptance of unbacked money even in the absence of ongoing sovereign support. Although sovereign power might be necessary to launch a fiat standard, we conclude that it is not a necessary condition for its survival.

Testimony & Comments

So long as monetary policy is conducted in a discretionary manner, it is important to maintain the independent input of the Reserve Bank presidents on the FOMC. The Reserve Banks should therefore not become mere outposts of the Federal Reserve Board in order to eliminate commercial bankers’ representation on their boards of directors. A better way to remove the potential for conflicts of interest is to require the Federal Reserve System to leave the formation of fiscal and credit-allocation policies to Congress and their execution to the US Treasury.

Chairman Paul and members of the subcommittee: Thank you for the opportunity to discuss the fractional- reserve character of modern banking, its positives and negatives, its relationship to financial instability, and to offer my thoughts on how to promote greater banking stability. I will begin by describing the historical origins of fractional-reserve banking (hereafter FRB), then move on to the effect of FRB on the money supply process, its connection to bank runs and financial instability, and finally the reforms needed to improve our banking system.

Expert Commentary

The favorable attention given to the idea of reinstituting a gold standard has attracted criticism of the idea from a variety of sources. Considered here are the most important arguments against the gold standard that have been made by economists and economic journalists in recent years.

Since it began operations 98 years ago, the Federal Reserve System has performed functions that are vital to the financial system. Yet the fact that the Fed now plays some important roles doesn't show that the Fed is the only institution capable of playing those roles, much less the best at doing them. In fact, history shows us that private institutions have been more capable at carrying out many of the Fed's activities. As the Fed begins a new and indefinitely large round of quantitative easing, it's time to consider whether the Fed, compared to its alternatives, has been doing more harm than good.

In "The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years," George Mason economist Lawrence H. White provides a masterful treatment of the struggle between different approaches and different schools of thought.

Books

The Clash of Economic Ideas interweaves the economic history of the last hundred years with the history of economic doctrines to understand how contrasting economic ideas have originated and developed over time to take their present forms. It traces the connections running from historical events to debates among economists, and from the ideas of academic writers to major experiments in economic policy.